Vacation home business still strong

Low mortgage rates, Baby Boomer influx boosts market

BOSTON (CBS.MW) -- Potential buyers of vacation and second homes in resort destinations will find plenty of choices in the coming months and years. But finding a bargain won't be so easy.

Vacation home developers attending the Urban Land Institute conference here this week expressed some short-term caution about the market given the fallout from the Sept. 11 terrorist attacks, but said buyers are not yet backing out of any contracts and planned projects are moving forward on schedule.

And the long-term outlook for the business has never been better.

"The event may actually be helping people make a decision. After what they saw, they're taking a look at a possible resort home and saying 'why am I waiting?"
Gary Raymond,Intrawest Corp.

"We've closed a lot of lots that we had under contract before Sept. 11. We haven't lost any sales," said Gary Raymond, president of resort development for Intrawest Corp.
ITW, -0.68%
Vancouver, B.C.-based Intrawest operates 17 resort villages in Canada, the United States and Europe.

"The event may actually be helping people make a decision. After what they saw, they're taking a look at a possible resort home and saying 'why am I waiting?'" he said.

James Motta, chief executive officer of Arvida, a unit of The St. Joe Co.
JOE, -0.23%
said his company has eight sales launches planned at projects around the country through the spring.

"At this point, there is sufficient interest in all of them that we're not pulling back on any of the eight," he said. "But we are spending a lot more time being a cheerleader for the sales staff."

Much of the concern generated in the aftermath of Sept. 11 is being mitigated by low interest rates, Motta said.

"Rates are so rock bottom that if people are going to buy now is the time. There is little excess inventory anywhere we are," he said. "A lot of people are making the decision now to buy their piece of retirement, to buy their lot, even if they won't use it five or 10 years."

No price relief

Developers and managers agree that there are a few more vacation and resort units being put on the resale market. But they also said there has been no move down in prices.

"Owners aren't willing to take their prices down to another level just to take their money off the table. They're willing to wait," Motta said.

In prime resort destinations, new condominiums can sell for $800 or $900 per square foot -- $400,000 and up for a simple 500-square-foot studio unit. Existing properties often have units for sale at prices 20 or 25 percent below the newest units.

"The really high end is holding up," said Harry Frampton III, president of East West Partners western division in Beaver Creek, Colo. "What might not be holding up is the A-minus locations that people have priced as A-plus. It has to be the absolute best."

Demographic analyst Harry Dent Jr. said the aging Baby Boom population is forming a strong underpinning for the resort and vacation home development business. The earliest of the generation has just passed the average age -- 52 -- at which consumers make a second-home purchase, he said.

"Residential housing overall in not likely to grow as much as it has, but resort and vacation projects are likely to boom over the next decade" as the most numerous segment of the Boomers -- those born from 1957 to 1961 -- reach the second-home buying stage, Dent said.

Adding to the momentum will be an increase in the number of affluent households in America, Dent said. There are 19.4 million households today with $500,000 in net worth and/or $100,000 of annual income -- prime vacation-home buyers. But the number could double to 40 million as early as 2005, he said.

Potential negatives for the market could come from a reluctance to travel, a wish to spend more time close to home and family and a general competition for consumers' attention, said developer Diana Permar of Charleston, S.C.

"It's increasingly hard, especially with 60 or 70 percent of women in the workforce, to find time for families or for couples to get away. Even though they need it more than ever," Permar said.

Building communities

But vacation-home developments are evolving to meet those needs. Developers are no longer able to just stick up a hotel with a pool and maybe a restaurant in a popular area and expect to draw buyers.

Today's resort project is a more complete community, often with a town center of shops and gathering places, multiple eating establishments and a host of sites catering to a variety of activities such as skiing, hiking, biking, ecology, education and computing.

"They want every recreational opportunity you can deliver. They want great places to hang out. People attract people," Raymond said.

The sense of community, the need to interact with other human beings, is something that developers say they will have to be more keenly aware of, especially after Sept. 11.

"The need to provide a diversity of options, a diversity of amenities, is going to continue."
Harry Frampton.East West Partners

"When we talked to our buyers at Vail, they said they bought because it was a great gathering place, not because it was a great ski resort," Frampton said. "The need to provide a diversity of options, a diversity of amenities, is going to continue."

"Whether its golf, the arts, culture or history, you have to match the bricks and mortar of your development to the community around it. You have to deliver a total vacation experience."

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